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Fannie Mae and Freddie Mac Takeover - A Reality Check.

Stock values of Fannie Mae and Freddie Mac plunged from their all time highs today to less than $1 a share. For many in real estate the concern is our real estate sales and potential commissions, but reality has a lot broader implications that could harm our real estate businesses for sometime to come. As a business we need to focus on more htna just cheap mortgage rates, and more closings. We need to take a look at how this may start to impact our local communities. The biggest holders of Fannie Mae and Freddie Mac preferred shares, and common shares are other banks, pension funds, and insurance funds. Those losses can be our losses. A few articles I've read this evening talked about how some smaller banks owned over $60 million in shares that are basically worthless. Not only have they had a major loss on their investment, it now places the banks at risk while the Federal Government keeps minimizing the losses.

It is easy to minimize a loss if it isn't your money, but if it was your stock portfolio that was lost, or your bank thrown under a bus many of us could be put into dire straights. Get ready for new waves of bank write downs - for many banks they will be in the billions. We need to start seing this for what it really is.

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Posted by Jim Crawford ~ Atlanta Real Estate-ABR E-PRO on 09/08/2008 11:33 PM

Comments (35)

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Originally posted at: Atlanta Real Estate | Atlanta Housing News for Real Estate: Fannie Mae and Freddie Mac Takeover - A Reality Check.

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35 Comments on Fannie Mae and Freddie Mac Takeover - A Reality Check.

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2008

Excellent post. We'll not know where this is going for at least a few days, but it's probably not going to be good.

They keep talking about how bad things would have been had the Fed not stepped in... I still stand by my original preiction that where the Govt. is involved, the cure is worse than the disease. This will be no different.

There are so many things that we do not yet even understand

Ann Heitland, Associate Broker, CRS, GRI , ABR ~ Flagstaff Real Estate/Community (Team Heitland at RE/MAX Peak Properties) I started reading this evening about the impact on small banks that had major holdings in these companies because they were considered so safe. I also read where the heads of bot of these companies will step down with some major cash in their pockets! That is absolutely wrong. If they stepped down because of wrong doing they should be in jail!

Fairbanks Real Estate Broker Jesse Clifton (Jesse & Kathy Clifton, REALTORS - 907.699.6024 - ) Jesse, I could not agree with you more.

Jon Zolsky (FunCoast Realty LLC) I agree. There is also the synergy of the act. How will this play out on the public? How will the actions be percieved.

Jim - The deeper we get into this hole, the deeper it seems to get. Despite the stock market rally today, there are very few signs that the economy is even going to start to turn around anytime soon. With the gov't absorbing what could be up to $300 billion in new debt, the effect of this decision will be felt years.

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2008

Erik Hitzelberger, --Louisville-Bullitt County Real Estate (RE/MAX Alliance) The technical analysis of what happened today was sobering. In spite rally we thought we were viewing, the volume of stocks sold was light. It seemed more like a suckers rally than anything else. After the losses of Fannie Mae and Freddie Mac stock which were supposed to be very safe...I would not feel like rushing in to buy other stocks.

Thanks Jim for helping those like me who have a hard time sifting through all the data out there about the bailout/meltdown, etc. I appreciate your wisdom.

Jim: I agree that there are long term implications here that are well beyond what we see today, but I guess to really understand the situation, I would like to hear you speak on what alternatives the gov't had but a takeover...??? I don't think there were many other options, if any. Am I right?

Owning stock is risky. The risk averse invest in other things or put their money in money. Folks who invested in these stocks made big money over the years relying on the government backing.

They got what they asked for, government backing.

No one complained when owners made big money on these stocks. No one should complain when they lose big money on these stocks.

Jim your right this collapse is only going to add to the trouble and pain the Real Estate markets around the country are facing.

Jim...

These are troubled times indeed, and I think that before long, the broader implications of all this will hit the economy ...HARD!

Jim:

This again shows the same wrong investing practices. Banks should of held an investment in any one stock to below 3% of assets. Secondly, what are small banks doing owning stock, Their job is to invest money by loaning. If it was parking the investment it was unappropriated.

I guess each diaster bring the other excess behind the scenes out into the open.

Richard

Susie Blackmon-Maggie Valley Waynesville NC Realtor/RE Blogger/Photographer (COLDWELL BANKER Kasey & Associates) New information about this is coming up all the time.

Steve Homer (The HBH Group (Keller Williams affiliate))This is a question that has no clear answer. The problem is it is mired in politics. Fannie Mae and Freddie Mac were traded as public companies, yet were exempt from SEC oversight. Even thought they are quasi government agencies, they were allowed to lobby. The bailout bill also contained a lot of pork. Most persons do not know there were bailouts to automakers, and pharmaceuticals and health-care in hte same bill. What really concerned me were the related stories was showing there is a lot more collateral damage the they are letting on. We cannot put our heads in the sand and really think the politicians have fixed anything. They are robbing the bank that is on fire.

Lenn Harley, Homefinders.com, MD & VA Real Estate Lenn I guess what bothers me most is the lack of oversight. Many pensioners are about to find out that their pensions are not very safe. Insurance companies, and state pension funds were some of the biggest investors.

Bill Gassett Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) If homeowners that are in ARMS can refinance to fixed rate 30 year loans this may be a great thing. I want to hear of a rush to the doors on good news. The phones are still not ringing, and I am waiting for better days.

Richard Weisser, Associate Broker, E-Pro ERA United Realty, Auctioneer, CE Author (Coweta Fayette Real Estate, Inc. ERA United Realty) We are going to have to fasten our seatbelts and watch the events as they unfold.

Richard Stabile Bergen County New Homes Builder Realtor (REMAX real estate associates) Their stocks were considered one of the safest...that is why they were held. Obviously they were all wrong. It is like the person on life supports they are technically not dead, but are they really alive? Did the government really rescue the company if a lot of the share values were wiped out?

Jim, The bonds are protected for the larger institutional investors and foreign countries not shareholders. The short and long term affects of this move are going to be felt for possibly years and there is really no way to even speculate where this is going. It is unprecendented and all I know is that it will eventuially get better. The question is how bad does it get before that occurs. No one really knows!

Thanks

Craig Jerrell is a loan officer I use, he has over 30 years expeirence, and here are his thoughts:

The implied guaranty of the government has now become a direct guaranty and subsidy. How will this affect the average consumer and Realtor? I predict the following changes: Interest rates will rally about one quarter to one half of one percent lower as borrowing costs are reduced. Conforming limits will rise and become more national in scope in all 50 states. Jumbo lending will benefit from higher conforming limits. There will be an orderly transition over the next 5-10 years of more portfolio lending by banks and less reliance on Fannie and Freddie. Fannie and Freddie will shrink by design by two-thirds in the next ten years. Lower interest rates will stimulate sales and help refinances and reduce inventory. Lower interest rates will NOT help people with bad credit and no savings, homeownership will return to a privilege that is earned. As the economy rallies, employment will increase and that will help housing stabilize more than lower rates. Now is a great time to buy or sell real estate, this move will only strengthen the market. Regards, ________________________________
Craig Jarrell

Bo Hussung/ Title services in all 50 states (Cogent Closing Associates) We are in totally uncharted waters here. I think we all need to be patient, but it is a good time to keep our eyes open and stay alert. The numbers are absolutely sobering, and the big boys and countries are all taken care of. The little guys have been set adrift on the ice flow.

I, for one, plan to buy up as much as I can for about .25 cents a share. Once they split these companies into multiple entities and return their privatized status, I'll be able to quit appraising. Wait and see.

Richard Weeks, REALTOR®, Broker Associate, GRI, ePRO, eAgent (Keller Williams Dallas City Center) Richard thank you very much! I do agree with you..."Lower interest rates will NOT help people with bad credit and no savings, homeownership will return to a privilege that is earned. As the economy rallies, employment will increase and that will help housing stabilize more than lower rates. Now is a great time to buy or sell real estate, this move will only strengthen the market."

Benjamin Smith - Atlanta Area Appraiser (Apex Appraisals & Consulting) Thanks for sharing. We're all waiting.

Jim,

This weekend's Fannie Mae and Freddie Mac takeover does firm up the base of the vast mortgage market, but those institutions holding their common shares are left holding the bag. We'll see how they fare.

Esko Kiuru - Las Vegas NV Mortgage Consultant (Sinifox Financial) I hope it fares well. It is the largest bailout in history.

I read a very interesting article this evening that talked about "The Biggest Bailout of All Times!"

If the government puts in only 10% of the guaranteed $5 trillion it guarantees that would place a taxpayer payout of $500 billion.

So the train wreck finally happened so why would anyone be surprised? All the signs were there the last 10 years, the fed did a study concluding F F didn't benefit borrows, neither R or D made any regulations to make them have more conservative reserve ratios which is required of other banks, accounting irregularities, the congresional idiots recently voted to raise the limits on their jumbo loans, pressure to buy loans from borrowers who didn't qualify for a loan a few years before... the stockholders deserve to lose everything and the bond holders deserve to get a % of their bonds once everything is liquidated. Unfortunately , Paulson thinks and most agree allowing the normal financial cleansing process for this huge mortagage house would cause a financial meltdown across the lands and thus they must be brought to an orderly demise over the next 10 years via taxpayer subsidy. F and F were having to recently pay subprime rates to get money infusions, so the time was right to take them over.

We won't know the cost to the taxpayers until it is over and won't have a good estimate until the housing market bottoms. The housing market won't bottom for a long time as inventory continues to increase, # of qualififed buyers decreases, joblessness increases, ave family income stagnates. We may be in for several years of pain and then you will understand why all those who lived through the great depression were so frugal 50 years later... We will probably have some great battery or solar energy breakthroughs in the next 5 years that will lead us into a period of sustained economic progress or it will be the third world countries arising middle classes that revive the economy. With an already 10 trillion public debt, 50 trllion in unfunded future obligations, a record 2008 budget deficit this "bailout" is still chump change compared to the accumulated financial obligations. Hold on to your hat as there are no free lunches and we still don't have a plan for this bigger financial storm.

The good news is it's only money and although painful a new currency/monetary system will be created if/when things get too bad. Or perhaps the federal govenment will sell off all the public lands/drilling rights to pay off the debt? It seems nobody really cares and figures we will deal with it when it gets worse??? Ron Paul was the only candidate addressing the most important fiscal issues facing our country and the citizens ignored him? Go figure? We are sending how many billions to New Orleans to fix a sinking city with leeves that will just fail again??? We need real change, not obama or mccain, but Buffet although he won't run! What are you doing to help your country? The government seems to have us heading on a path to an even biger train wreck! Enjoy the ride or prepare for the ride?

Phil I love your insights...and I've fastened my seatbelt for the rest of the ride!

Jim,

When will we learn...the ripple effect of a bad real estate market is sometimes worse than a bad real estate market! Thanks, Fran

Fran 'The Title Man' Gaspari Title Insurance-PA & NJ (Patriot Land Transfer, Inc.) So true Fran!

Jim,

Getting back to those impacted by the lost value of Fannie and Freddie.

The powers speak about the taxpayers not bailing out the stock holders in ways that sound like they deserve the loss because of they participated in the high profits, and tax payers should not bail out the rich.

So many of the stock holders are small regional banks, pensions, and insurance funds - the people who are not getting bailed out are us.

The CEO's are bailed out ($15 million each is the number I heard). I think WaMu CEO gets $25 million.

We cannot bail out the stock holders, but we should understand who it is that is losing.

Richard

Richard Smith Mortgages Home Loans FHA TN GA AL (American Acceptance Mortgage, Inc) I like your perspective. Yes, us!

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